In a report on Thursday, Mexico's February consumer price index
(CPI) was up 3.9% from the same month one year earlier. That
was slightly better than the year-over-year increase of 4.0% in
January, and it marked the first decline in inflation after four
straight months of acceleration. According to the report,
from the official statistics agency INEGI, the pullback in
inflation in February came mostly from easing prices for food
products such as tomatoes, lemons, onions, and eggs.
Excluding fresh foods, energy, and administratively-determined
prices, the February "core" CPI was up 3.4% year-over-year, after
an increase of 3.3% in January.
At the wholesale level, inflation fell sharply, but it remained
much higher than at the retail level. The February producer
price index (PPI) was up 5.6% year-over-year, after readings of
6.4% in January and 6.6% in both December and November.
Comment: Starting this month, I
begin using the PPI for all final goods and services instead of the
PPI for final goods only. The broader series has a shorter
history than the narrower one, but I have decided that it is long
enough to rely on. The broader series is also more comparable
with the CPI, which also covers both goods and services.
Producer inflation using the PPI for all final goods and
services is somewhat lower than indicated by the series for goods
only, but it is still significantly higher than consumer
inflation. Therefore, it seems likely that Mexican producers
will keep trying to pass their increased costs on to consumers,
driving up consumer inflation. The acceleration in core
consumer inflation in February also points to continued price
pressures. Against this backdrop, Banco de México will
probably hold interest rates steady in the coming months, instead
of cutting them as many observers expected last fall. The
increased likelihood of stable interest will probably put added
upward pressure on the value of the peso.
Patrick Fearon, CFA
Vice President, Fund Management